United States District Court, N.D. Illinois, Eastern Division
MEMORANDUM OPINION AND ORDER
S. SHAH UNITED STATES DISTRICT JUDGE.
Wells Fargo Bank, N.A.'s complaint alleges that
defendants/counter-claimants Worldwide Shrimp Company and
William J. Appelbaum breached a loan agreement. Defendants
have counterclaimed, alleging that Wells Fargo breached that
agreement (and that Wells Fargo tortiously interfered with
their contractual relationships and business expectancies).
Wells Fargo says it has documents that, taken in combination
with the terms of the agreement and generally accepted
accounting principles, prove that it did not breach the
agreement, and that defendants' tortious interference
claims fail as a matter of law. It also says that defendants
have not done enough to remedy the problems that led to the
dismissal of their original breach-of-contract counterclaim.
Wells Fargo moves to dismiss those counts from the amended
complaint must contain a short and plain statement that
plausibly suggests a right to relief. Ashcroft v.
Iqbal, 556 U.S. 662, 677-78 (2009); Fed.R.Civ.P.
8(a)(2). In ruling on a motion to dismiss, a court must
accept all factual allegations in the complaint as true and
draw all reasonable inferences in the plaintiff's favor,
but the court need not accept legal conclusions or conclusory
allegations. Ashcroft, 556 U.S. at 680-82. A
complaint must “contain either direct or inferential
allegations respecting all the material elements necessary to
sustain recovery under some viable legal theory.”
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 562
(2007). See also Firestone Fin. Corp. v. Meyer, 796
F.3d 822, 827 (7th Cir. 2015) (many of the same rules that
apply to a motion to dismiss a complaint apply to a motion to
dismiss a counterclaim).
the factual background relevant to the parties' dispute
has been recounted in other orders. See, e.g.,
. What is pertinent to Wells Fargo's
present motion are the allegations in defendants' amended
counterclaim. See ; Fed.R.Civ.P. 12(b), (d).
According to the amended counterclaim, Wells Fargo extended a
line of credit to Worldwide and Appelbaum worth $15 million,
 at 37, ¶ 7,  and, in return, Worldwide promised to
maintain, in accordance with “generally accepted
accounting principles, ” (1) a “tangible net
worth” of not less than $2.0 million, [1-1] at 10,
§ 4.9(a); [1-1] at 19, § 2; [1-1] at 22, §
(2) “minimum net income after taxes not less than $1.00
as of each fiscal quarter end, ” [1-1] at 10, §
4.9(b); [1-1] at 19, § 3, and (3) certain books and
records. See, e.g., [1-1] at 9, § 4.2.
also promised to provide Wells Fargo with annual and monthly
financial statements. [1-1] § 4.3(a), (b), (f). Each
annual financial statement was to be accompanied by a
certificate verifying that the statements were accurate, and
that Worldwide was “in compliance with all financial
covenants … and that there exists no Event of Default
nor any condition … which with the … passage of
time … would constitute an event of default.”
[1-1] § 4.3(f).
loan documents list eight “events of default, ”
[1-1] at 12-13, § 6.1, including “[a]ny default in
the performance of or compliance with any obligation,
agreement or other provision” contained in any of the
loan documents. Id. § 6.1(c). Upon the
occurrence of an event of default, the loan documents grant
Wells Fargo the right to certain remedies, including the
right to make “all indebtedness of Borrower …
immediately due and payable, ” and the right to opt out
of “extend[ing] any further credit under any of the
Loan Documents.” [1-1] at 13, § 6.2(b).
2016, Appelbaum came to believe that the price of shrimp was
about to drop.  at 38-39, ¶ 12. He called his
banker at Well Fargo (Keith Cable) for advice, and was told
it would be best to prospectively recognize a decline in the
value of Worldwide's inventory.  at 39, ¶¶
13, 14. In the year-end financial and accounting reports that
Appelbaum and Worldwide provided to Wells Fargo, defendants
“formally wrote down the value of [their]
inventory.”  at 40, ¶ 18. Appelbaum's
prediction ultimately proved untrue, and the value of
Worldwide's inventory never dropped below the level
required by their loan documents.  at 45-46, ¶ 40.
months that followed, defendants allege that they
consistently provided Wells Fargo with detailed financial
information, including information about their inventory,
accounts receivable, and sales.  at 42-43, ¶¶
27-28. To the degree that Wells Fargo requested additional
information that it did not already have, defendants say they
provided it. Id. at 44, ¶¶ 30-37. Wells
Fargo found at least some of this additional information
sufficient. Id. ¶ 37. Defendants allege that
they have “never been in default of any of the
covenants contained in the loan documents.”  at
46, ¶ 41.
December, 2018, when granting in part, denying in part Wells
Fargo's motion to dismiss the initial counterclaim, I
noted that “[d]ocuments evidencing the write-down (such
as 2016 year-end financial reports, see  at 4,
n.5) were not attached to the complaint, see [1-1],
the answer, [150-1], or any of the briefs, ” and
remarked that, even if they had been, neither party had
briefed “whether ‘generally accepted accounting
principles' require recognizing the method of write-down
that Worldwide employed.”  at 10-11. I also noted
that Wells Fargo had not shown that accounting principles
could be applied as a matter of law. Id. at 11.
Defendants filed an amended answer and amended counterclaim,
; , and Wells Fargo's motion to dismiss that
amended counterclaim followed. .
Fargo's motion seeks a determination that Worldwide's
write-down resulted in an event of default under the loan
documents. If that were true, Wells Fargo posits that
Worldwide's counterclaim for breach of contract would
fail because the actions Wells Fargo took would have been
authorized. In support of its motion, Wells Fargo has
submitted documents that it asserts constitute
Worldwide's 2016 year-end financial statements, [189-1];
[189-5], and which Wells Fargo argues demonstrate that an
event of default occurred-provided that one use
“generally accepted accounting principles” to
determine their significance. See  at 7-15.
must convert a motion to dismiss to one for summary judgment
if it considers documents outside of the pleadings (and,
before doing so, must give the parties a reasonable
opportunity to present all pertinent material). Fed.R.Civ.P.
12(d). See also Fed. R. Civ. P. 7(a)(2) (an answer
to a complaint is a type of pleading); 13(a), (b) (both
compulsory and permissive counterclaims must be contained in
a pleading). Many of the arguments made here (and much of the
evidence submitted in support of those arguments) are better
suited for disposition under Federal Rule of Civil Procedure
56, but I decline to convert the motion to one for summary
judgment. The parties have not ...